As
prepared for delivery
WASHINGTON
- Chairman Udall, Ranking Member Johanns, and distinguished members of the
Subcommittee on Financial Services and General Government: Thank you for the
opportunity to appear before you today to discuss the Department of the
Treasury’s Office of Terrorism and Financial Intelligence (TFI). My remarks will focus on the history of TFI,
TFI’s components, TFI’s role in implementing sanctions programs, and the
President’s FY 2015 funding request for TFI.
I am especially proud to be
appearing before this Subcommittee to discuss the work of TFI. The women and men of TFI are an outstanding
group – skilled, creative, patriotic, and enormously dedicated to their
increasingly demanding jobs. For just
over three years now, I have had the privilege of serving as the Under
Secretary of TFI, and I am impressed every day by the truly remarkable work of
my TFI colleagues. In the course of this
hearing, I hope to convey to this Subcommittee how much we all benefit from
their magnificent work.
TFI Background and History
September 11, 2001 served
as the catalyst for an important shift in the U.S. government’s approach to
national security. Following that fateful
day, there was a newfound recognition across the government that disrupting the
financial infrastructure of terrorist groups needed to be a part of our
counterterrorism strategy.
And in the twelve years since those tragic attacks, we
have made great strides in developing a comprehensive, whole-of-government
approach to combating terrorist financing.
By all accounts, the United States has been at the forefront of this
effort globally. The Treasury Department—and
our powerful financial toolkit—have been key to this effort.
And as the national
security landscape has evolved over the past decades, so have Treasury’s
efforts. Far from just being focused on
issues related to terrorist financing, Treasury’s use of financial measures has
become a crucial tool for protecting and advancing a much broader range of
national security and foreign policy interests of the United States.
The reason behind TFI’s
broadening mandate is simple: Nearly every national security threat has an
important financial component.
Effectively mitigating these threats requires creative thinking about
how to leverage, pressure, and often exploit our adversaries’ financial
vulnerabilities.
That is where TFI comes
in. TFI has been recognized as a leader
within the government for its intelligence, enforcement, diplomatic, and
regulatory capabilities. We have also
been recognized for our substantive expertise on topics as varied as virtual
currency, transnational organized crime, counter-terrorism, and nuclear
non-proliferation.
As a result, we have been
increasingly called upon to deploy our various tools to address national
security threats in nearly every corner of the globe. These tools include financial and economic
sanctions, regulatory actions including Section 311 of the USA PATRIOT Act,
civil enforcement actions, advisories to the private sector, and conversations
to alert foreign government officials as well as the private sector to
particular threats.
TFI Components
The diversity of the
threats that we face and the tools that we have to mitigate those threats means
that TFI’s output must be the sum of many crucial parts. Each of these parts meaningfully contributes
to TFI’s mission, from marshaling financial intelligence and analytical
capabilities to engaging businesses and governments around the world to
deploying regulatory tools and sanctions authorities.
To better understand how
all of these parts come together under the TFI umbrella, let me provide some
detail on the structure of our office.
TFI is comprised of five
components: the Office of Intelligence and Analysis (OIA), the Office of
Foreign Assets Control (OFAC), the Office of Terrorist Financing and Financial
Crimes (TFFC), the Financial Crimes Enforcement Network (FinCEN), and the
Treasury Executive Office of Asset Forfeiture (TEOAF).
Treasury is the only
finance ministry in the world with its own in-house intelligence unit. OIA subject-matter and tradecraft experts
contribute to every aspect of the intelligence cycle, providing all-source
intelligence analysis to Treasury officials and other intelligence customers throughout
the U.S. government, including the President.
Harnessing OIA’s
intelligence capabilities is crucial to the mission of other TFI components,
including OFAC. OFAC designs, implements,
and enforces sanctions programs to disrupt and dismantle the support networks
of terrorist groups, WMD proliferators, drug traffickers, and organized
criminal groups. OFAC’s workload has
grown tremendously since the creation of TFI.
When TFI was formed in 2004, OFAC managed 17 sanctions programs. Today, it manages 37.
Sanctions programs are most
effective when they stand on a foundation of strong systemic safeguards in the
financial sector. Indeed, one of the
TFI’s core missions is to ensure that these safeguards are part of our own
domestic financial system and to encourage the adoption of similar safeguards
around the world.
The aim of these safeguards
can be captured in one word: transparency.
Transparency is critical to
enabling financial institutions and law enforcement, regulatory, and other
authorities to “follow the money” — that is, to identify traces
of illicit finance so that they can protect the integrity of the international
financial system. Their efforts, in turn, deny terrorists, proliferators, and
other criminals access to the financial system, forcing them to turn to
costlier and riskier alternative ways of moving money.
To promote international
financial transparency, TFFC develops policies and implements strategies to
strengthen the integrity of the financial system and safeguard it from
terrorist financing, money laundering, drug trafficking, organized crime, and
proliferation finance. TFFC also
establishes strategic relationships across the globe to foster adoption of best
practices while identifying priority threats to, and vulnerabilities in, the
U.S. and international financial systems.
Domestically, FinCEN
implements the Bank Secrecy Act (BSA), designing and enforcing a regulatory
framework to defend the U.S. financial system from money laundering and other
serious financial crimes. To do so,
FinCEN requires financial institutions to create and maintain records that are
highly useful to law enforcement and collects, analyzes, and disseminates
financial intelligence. FinCEN also
works with counterpart financial intelligence units around the world to share
information in an effort to prevent criminals from exploiting international
borders to hide from justice.
Meanwhile, TEOAF guides the
strategic use of forfeited assets by Treasury, the Department of Justice, U.S.
Immigration and Customs Enforcement, U.S. Customs and Border Protection, U.S.
Secret Service, and other law enforcement agencies to disrupt and dismantle
criminal enterprises.
I will turn now to TFI’s
role in designing and implementing some of our sanctions programs. While these sanctions efforts vary in size
and scope, all have achieved meaningful results in furthering important
national security goals.
Ukraine-related Sanctions Actions
The Treasury Department has
played a major role in the U.S. and international community’s response to
Russia’s recent actions in Ukraine, including its support for an illegal
referendum in Crimea, the purported annexation of Crimea, the dangerous risk of
escalation caused by Russian troops in Crimea, and the potential for violence
related to the buildup of Russian forces on Ukraine’s eastern border.
In response to Russian
aggression, President Obama has issued three executive orders (E.O.), which
together provide the Secretary of the Treasury, in consultation with the
Secretary of State, the authority to impose broad sanctions on Russia and
others individuals and entities responsible for the situation in Ukraine.
Armed with these new
authorities, we have followed through on President Obama’s warning that there
will be real costs for Russia’s incursion into Ukraine and its violation of
Ukrainian sovereignty. So far, we have
designated 31 individuals – including Crimean separatist leaders, Russian
government officials, and members of the inner circle of the Russian leadership
– as well as Bank Rossiya, a mid-sized Russian bank.
Those designated have had
their assets in the U.S. frozen and are barred entirely from conducting
business with, in, or through the United States. I suspect that they will also find it very
difficult to conduct business outside the U.S., because our experience with
other sanctions programs has demonstrated that major financial centers around
the world often adhere to U.S. guidelines when it comes to the implementation
of sanctions. In short, these
individuals will find their ability to transact in the world economy severely
constrained.
Of particular note, the
President has given the Secretary of the Treasury the authority to target
Russian government officials as well as those who materially support or act on
behalf of senior Russian officials.
Using this authority we designated individuals such as Gennady
Timchenko, whose activities in the energy sector have been directly linked to
President Putin, and Yuri Kovalchuk, the largest shareholder of Bank Rossiya
and personal banker for senior officials of the Russian Federation.
As I noted, we have also designated Bank
Rossiya, which has served as the bank for President Putin and other senior
Russian government officials. Prior to
its designation, Bank Rossiya was the 17th largest bank in Russia, with about
$10 billion in assets and numerous U.S. dollar-denominated correspondent
accounts here in the U.S., as well as correspondent accounts in Europe and
elsewhere denominated in other currencies.
Following our action last week, the bank’s
assets under U.S. jurisdiction are blocked, it has been frozen out of using the
dollar, and it no longer has access to its correspondent accounts within U.S.
financial institutions. And we are
working with our partners in foreign governments and in the international
private sector to further isolate the bank and stymie its operations.
On March 20, the President
signed the latest E.O., which authorizes the Secretary of the Treasury, in
consultation with the Secretary of State, to sanction any individual or entity
determined to operate in sectors of the Russian economy specified in the future
by the Secretary of the Treasury, including the energy, metals, and mining
sectors. This authority is a very
powerful yet flexible tool that will allow us to respond quickly and
meaningfully as events develop in Ukraine.
We recognize that these
measures will have the greatest impact when harmonized with the actions of our
international partners, in particular in Europe and Asia, because of their
extensive economic ties to Russia. We
are in daily communication with our counterparts in the G-7, the European Union
(EU), and other countries with significant financial and economic links to
Russia to discuss how we can best adopt collective measures.
These are serious measures
with implications across the global economy.
But while a diplomatic resolution remains the preferred outcome to the situation
involving Ukraine, Russia must know that any escalation will only isolate it
further from the international community and the international economy.
Beyond our sanctions effort, Treasury
has also used our tools to halt the
misappropriation of assets from Ukraine.
FinCEN has issued two advisories to U.S. financial
institutions related to the unrest in country. These advisories remind
institutions of their obligation to apply enhanced scrutiny to accounts and
transactions conducted on or behalf of senior Ukrainian political officials,
including those of the former Yanukovych administration, and to report any
suspicious financial transactions.
Iran Sanctions Program
Our unprecedented sanctions
on Iran have led the way in demonstrating the power and efficacy of our
financial measures.
From the outset of the
Obama Administration, we have pursued a dual-track strategy that paired an
offer to Iran to rejoin the community of nations if it addresses the
international community’s concerns over its nuclear program with increasingly
powerful and sophisticated sanctions if it continued to ignore those concerns.
When Iran initially chose
another path, we responded by crafting and implementing the most comprehensive,
powerful, and effective set of sanctions in history.
Today, Iran stands isolated
from the global financial system with slashed oil revenues, an eroded currency,
and a severely weakened economy.
Our oil, financial, and
trade-based sanctions helped drive Iran into deep recession. Since 2011, oil
sanctions imposed by the EU and the U.S. have cost Iran over $100 billion in
lost sales. Last year, Iran’s economy
contracted by six percent and is expected to perform badly this year as well. Its currency, the rial, has lost about 60
percent of its value against the dollar since 2011. And its inflation rate is about 30 percent,
one of the highest in the world.
This enormous pressure on
the Iranian economy did not come about overnight. We have worked side-by-side with Congress to
craft sanctions that target Iran’s key sources of economic strength. We maximized the impact of these sanctions
through TFFC’s robust and persistent engagement with foreign governments and
the private sector. Working alongside
our interagency partners, we leveraged our in-house intelligence component,
OIA, to identify Iranian pressure points.
And then OFAC took action against illicit actors and their financial
networks by targeting them with powerful sanctions.
This has not been a simple
task. In all, TFI enforces a
sophisticated and complex regime of sanctions on Iran that encompasses 10
statutes, 26 E.O.s, and 4 United Nations Security Council Resolutions. We supplement these tools by issuing public
guidance, licenses that advance U.S. objectives, and advisories warning of
concerning trends and practices.
Although our sanctions have
proved to be incredibly potent, we have not imposed sanctions for sanctions’
sake. All along, the goal of our
sanctions has been to induce a shift in the decision making calculus of the
Iranian government and to build the necessary leverage for serious negotiations
about its nuclear program.
We are now in the midst of
those negotiations. In the Joint Plan of
Action (JPOA) that went into effect in late January, Iran agreed to take important
steps to halt the advance of its nuclear program in exchange for limited,
targeted, and temporary relief for six months.
And as Iran has implemented its commitments to date, we have worked to
fulfill our own.
Even as we now seek to
negotiate a comprehensive solution over Iran’s nuclear program, the core
architecture of U.S. sanctions—especially our potent oil, financial and banking
sanctions—remains firmly in place. And
over the remaining four months of the JPOA period, we will continue to
vigorously enforce these sanctions as well as the broad array of sanctions
targeting Iran’s human rights abuses and its support for terrorism.
Syria Sanctions Program
In Syria, the U.S. government’s
policy is to isolate and degrade violent extremist networks and facilitate an
orderly end to the conflict, with a clear transition to a new competent and
representative authority. U.S. and
international sanctions are a key component of this effort, and are designed to
deprive the Assad regime of the financial means needed to support its
relentless campaign of violence against the Syrian people.
In the absence of UN
sanctions regime, the United States has worked with the EU, the Arab League, and
a host of other countries to build a robust international sanctions regime
designed to pressure the Syrian government and bring about an end to the
conflict. In close coordination with our
colleagues at the State Department, Treasury has played a key role in
international engagement on Syria through the Friends of the Syrian People
International Working Group on Sanctions, contributing to the U.S. government’s
effort to coordinate broader and more effective sanctions implementation among
like-minded countries.
Since the Syrian uprising
began in March 2011, President Obama has issued five E.O.s, each delegating
authority to the Treasury Department to impose sanctions in response to the
violence in Syria. These E.O.s significantly
expanded the tools available to the U.S. government to respond to the crisis in
Syria, namely by isolating the Assad regime and key regime supporters and
denying it the resources needed to fund its continued repression of the Syrian
people.
From the start of the
uprising to date, Treasury has designated more than 200 Syrian individuals and
entities pursuant to all of its relevant authorities. We have also used our authorities to expose
the involvement of foreign actors in Syria. Treasury designations have drawn attention to
Iranian support for the Syrian regime, whether directly or through its proxy,
the Lebanese terrorist group Hizballah.
Since the uprising began, we have designated the Islamic Revolutionary Guard Corps-Qods Force, Iran’s Law Enforcement
Forces, Hizballah, and Hizballah’s Secretary General Hassan Nasrallah
for providing material support to the Syrian regime’s violent response to
peaceful protests.
Apart from sanctions
against the Assad regime and its supporters, Treasury has also used its global
terrorism authorities to target the activities of extremists groups operating
in Syria such as al-Nusrah Front and the Islamic State of Iraq and the Levant
(ISIL), the group formerly known as al-Qa’ida in Iraq (AQI). We
have also been closely tracking the funding streams of these groups and have
sanctioned numerous terrorist financiers sending funds to extremists in Syria.
North Korea Sanctions Program
Following the DPRK’s April
2012 Taepo Dong-2 launch, the December 2012 Taepo Dong-2 launch, and the
February 2013 nuclear test, Treasury measures – including designations
targeting the DPRK’s nuclear, ballistic missile, and proliferation activities
as well as the regime’s access to luxury goods, and the financial networks that
support its illicit activities – have impeded the development and slowed the
pace of the DPRK’s illicit programs.
Over the past year,
Treasury has designated two key North Korean banks: Foreign Trade Bank and
Daedong Credit Bank, both of which provided crucial financial support to other
U.S. and UN-designated DPRK entities, including North Korea’s premier arms
dealer. Since August 2010, there have
been seven Treasury designations under E.O. 13551, which targets individuals
and entities facilitating North Korean arms sales, the procurement of luxury
goods, and illicit economic activities; and 31 designations under E.O. 13382,
which targets individuals and entities engaged in WMD proliferation-related
activities.
The DPRK’s recent missile
launches using ballistic missile technology on February 27, March 3, and March
26, 2014 are a clear indication that the DPRK is committed to aggressively
pursuing its ballistic missile and nuclear programs, which have been prohibited
by multiple UN Security Council resolutions.
The United States will continue to fully implement both UNSC and U.S.
sanctions authorities until it is clear to the DPRK that denuclearization is
the only path forward and Pyongyang undertakes complete, verifiable, and
irreversible denuclearization.
Narcotics Sanctions Program
Treasury has made significant progress in our
efforts to target drug lords worldwide through authorities granted to us in the
Foreign Narcotics Kingpin Designation Act (“Kingpin Act”). The Kingpin
Act aims to hit drug traffickers in their wallets, depriving them and their key
lieutenants and money launderers of access to the U.S. financial system. Since the law was passed, more than 1,400
individuals and entities have had their access to the U.S. financial system cut
off.
In 2013, Treasury designated 83 individuals
and 67 entities pursuant to the Kingpin Act, and the President identified six
significant international narcotics traffickers. Treasury focused on cartels operating out of
Mexico and Central America by repeatedly targeting the family members and close
associates of the Sinaloa Cartel, the associates and businesses of Los Zetas,
and an ever-expanding network of narcotics trafficking organizations in Central
America. Treasury also continued to
track the activities of major narcotics trafficking organizations in Colombia,
which have ties to these Mexican and Central American organizations.
One of the most influential designations last year was
the September action targeting the Los Cachiros, a Honduran drug trafficking
organization which plays a critical role in the transportation of narcotics
from Colombia to Mexico. On the same day
that Treasury designated this organization, the Government of Honduras embarked
on a week-long seizure action against Los Cachiros’ financial and commercial
assets, including those businesses designated by OFAC, pursuant to the Honduran
Asset Forfeiture Law. This success is
similar to other forfeiture actions that have followed OFAC designations in
Colombia and elsewhere.
Global
Counter-Terrorism Program
Over the past 12 years, OFAC has designated more than 800
individuals and entities under our counterterrorism sanctions program. In 2013, we designated 87 individuals and
entities with the aim of disrupting and degrading some of the most dangerous
terrorist threats to our country, including al-Qa`ida in the Arabian Peninsula
(AQAP), Lashkar-e Tayyiba, the Haqqani Network, and the Iranian Revolutionary
Guards Corps Qods Force.
Beyond the blocking of assets, a Treasury designation
exposes terrorists’ activities publicly, drawing them out of the shadows and
alerting financial institutions and foreign governments to their nefarious
activity. It also encourages
corresponding actions from counterterrorism partners and the United
Nations. But most importantly, the designations disrupt and degrade the
finances of terrorist groups as those designated will never again be able to
openly access the international financial system.
TFI Resource Levels
Now that I have outlined
some of our sanctions programs, I will discuss TFI’s resource levels. Despite the recent growth in our sanctions
programs, the $102 million provided in the FY 2014 Departmental Offices
appropriation is sufficient to allow us to accomplish our mission. We have been able to increase our sanctions
programs and other output by generating program efficiencies, effective
management, and transferring funds when needed among organizations and programs
within TFI.
In short, Treasury’s
Departmental Offices appropriations in years past have been sufficient to
support our operations and I believe that the FY 2015 budget request is no
different.
Conclusion
Over the past decade, TFI
has become a central part of the national security community. Comprised of an extraordinarily talented and
skilled group of intelligence analysts, policy advisors, sanctions
investigators, and regulators, TFI, working with our interagency partners, has
been crucial to our government’s efforts to disrupt illicit networks, protect
the integrity of the U.S. and international financial systems, and, in doing
so, advance the core national security and foreign policy interests of the
United States.
And as our country
continues to turn to financial instruments to resolve our thorniest foreign
policy challenges, TFI will continue to craft these tools, implement them, and
vigorously enforce them.
Thank you.
###